Economic Update – November 2016

Exports, for the first time since February 2015 saw Y-o-Y increase by 8.4% in August 2016. Exports for the first nine months were still down 4.1% on a cumulative basis compared to the same period last year. Imports grew steadily as well, rising by 8.3% Y-o-Y.

Inflation(CCPI) recorded a marginal increase from 3.9% to 4.2% in October 2016. Core inflation remained unchanged at 4.2% from last month.

Fiscal target for the forthcoming year was announced during the Budget Speech this month. The government announced reforms towards fiscal consolidation, aiming to reduce its fiscal deficit from 5.4% of GDP this year to 4.6% by 2017.

Purchasing Manager’s Index (PMI) figures for October 2016 showed strong expansion rates for both the Manufacturing and Services sectors. Manufacturing grew at a slower pace – dropping 1.1 points from last month to 56.5. PMI for services recorded strong figures this month – rising to 59.3 points this month, indicating expansion at a much higher pace

The World Bank released its development update for Sri Lanka, highlighting a relatively favorable outlook, largely due to key policy reforms such as monetary tightening and enhanced currency flexibility contributing towards short-term stability. The World Bank also estimated growth to stay marginally above 5.0% for 2016.

Credit to the Private Sector fell slightly to 27.3% in August, 1.2 percentage points higher than last months. However, Private Sector Credit levels are still significantly higher than last years – which stood at 21.3%.

Global Economy

On the 8th of November, Prime Minister Narendra Modi dramatically announced that the government will scrap its two highest currency denominations – Rs. 500 and Rs. 1000 – with immediate effect. The scheme signifies the government’s intent on tackling black money and corruption, which has plagued India’s economy for decades.

The Capital Economic China Activity Proxy (CAP) recorded growth rates for the month of October at 6%, which has been its highest in three years. However, growth is expected to reduce in 2017 as property markets begin to show signs of slowing down.

The Organization of the Petroleum Exporting Countries (OPEC) released its World Oil Outlook. The report expected prices to remain in the USD 40 – 50 range for 2016, with prices expected to recover with USD 5-a-barrel annual increments in the period up to 2021.

Precious and Base Metals saw strong increases for 2016, with Gold and Silver making strong gains mid-year, amidst rising economic uncertainty, only to be offset by strengthening of the dollar by end 2016. Base metals showed recent gains as well, bouncing off Trump’s surprise victory.